Global Trade Tensions Could Tank Israel’s Export, Report Shows
A new report by Israel’s Economy Ministry shows the rising global threat of a trade war between the U.S. and China could have a negative effect on Israeli exports, which account for 30% of the country’s GDP
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Export from Israel rose 7% between 2017 and 2018, reaching $110.6 billion, but centralization is a main apparent trend. Fifty companies, amounting to 0.3% of exporters from the Israeli market, are responsible for 60% of Israel’s global export, according to the report. 60% of all Israeli exports to Europe are done by just 35 companies; 19 companies are responsible for 60% of the country’s exports to Latin America; 60% of exports to Asia are made by 17 companies; and only 15 exporters grab 80% of all exports from Israel to China.
It must also be pointed out that on the surface, data on merchandise export from Israel is misleading. Export of cut diamonds and precious metals accounts for 24%, but while it does boost the dollar valuation, it does not actually make a substantial contribution to Israeli employment or quality of life. This is because Israel does not mine diamonds but rather imports them, cuts them, and then exports them, leaving the net contribution of the sector at an annual $6 billion, or 10% of all merchandise export. That is why economists often choose to exclude diamonds when discussing Israeli export.The same is true for mineral export: while over the past five years it jumped from $700 million to $1.5 billion, it is a fickle market in terms of both prices and demand. The market most affected in 2018 was the European market, the export to which dropped by almost 4%. This is due to a weakening in the growth of EU countries, expected to only get worse in the next two years, but also due to the continuous collapse of Israeli drugmaker Teva Pharmaceutical Industries Ltd. Still one of Israel’s largest companies, Teva’s struggles affected a 5.4% decrease in the Israeli export of chemicals and related products. As with most discussions of Israeli economy, the tech industry takes central stage. In the past year, the computing, software, and research and development subsectors alone added $4 billion to Israel’s total export. Export of computing and software services doubled from $8.7 billion in 2013 to $17.6 billion in 2018, leading the International Monetary Fund to name Israel as one of the world’s main computing services exporters in a 2017 report. This shift in export characteristics has many benefits, two of which can already be seen clearly, according to Ohad Cohen, head of the Foreign Trade Administration at the Ministry of Economy, and one of the authors of the report. First, it is much less centralized than the merchandise export segment. More importantly, computing and research and development together account for 51% of all services export—and those two industries have among the highest productivity rates in the Israeli market. In contrast, industrial productivity fell 0.55% in Israel between 2014 and 2018, compared to an OECD average growth of 2.6%.